PayPal - How does the fintech pioneer's technology work?

PayPal is one of the most popular fintech companies in the payment service provider category and is used by more than 300 million people. The payment service operates worldwide and was part of eBay until 2015. However, PayPal has been independent since 2015 and is based in Luxembourg in the form of a subsidiary (PayPal Europe) and has its headquarters in California. The European subsidiary is called PayPal (Europe) S.à r.l. & Cie, S.C.A. and has a banking license. The American parent company does not have such a license. PayPal (Europe) is controlled by the CSSF (Luxembourg Financial Supervisory Authority). In general, PayPal states that it is not a bank. The way PayPal works cannot be compared with a bank account.

PayPal—How Does the Service Work?

PayPal does not issue account numbers, but handles all payment transactions via the customer's stored e-mail address. To be able to use PayPal, however, more than just an e-mail address is required. Bank details or a credit card must also be provided so that payments can be debited. Payments from the stored bank account (bank details) are debited by direct debit authorization.

What technical requirements are necessary for use?
PayPal is used digitally. In addition to an e-mail address, it should also be possible to install the PayPal app or a browser and an Internet connection (or mobile data) should be available. The PayPal app is available for iOS and Android operating systems. If you use PayPal via an internet browser, look out for https pages and other security features. Although the PayPal app is considered secure, a virus scan and malware scan should be carried out regularly on PCs and mobile devices.

Who can use PayPal?

PayPal's services are aimed at both individual customers and merchants. Merchants must pay PayPal a fixed fee plus a percentage of their sales to use the service, for example, when making transfers. For individual customers, use of the service is generally free. A merchant may not pass on the fees to the buyer. The exact terms and conditions can be viewed on PayPal’s website. PayPal is a secure payment service and can also be used at online casinos. While paying at online casinos with PayPal is no longer possible with most providers, However, there is still a small selection of reputable casinos that accept payments via PayPal.

What are the advantages and disadvantages of PayPal?

PayPal is the payment service provider for purchases in online stores. Whether eBay or another online service where goods can be purchased, purchases can often be processed via PayPal. PayPal also allows you to send money to friends and acquaintances.

PayPal Benefits

The advantage of this payment service is obvious. The money is usually credited to the recipient’s PayPal account immediately. There’s no need to make a bank transfer, which can take days, as is common with many banks. Payments are processed using the registered email address. The service provider does not disclose the sender’s bank information. The recipient usually knows only the sender’s email address and name. The fact that bank information is not transmitted provides a certain level of security. Depending on the payment method, private sellers can protect themselves against financial loss and fraud. There is a feature called “Buyer Protection,” though it does not apply when money is sent to a friend. It can therefore be determined from the outset whether the recipient is a friend or acquaintance or a merchant. If the ordered goods do not reach the buyer or differ significantly from the actual order, the buyer can request a refund and, under certain conditions, will be reimbursed.

PayPal Disadvantages

The service collects information about its users. The privacy policy describes this data collection and states that the service stores information about to whom (address) goods were delivered, the amount spent on purchases, and who made a purchase and when. In addition, location data, hardware data, and other device information are transmitted via apps. PayPal may also obtain additional information about a customer from credit bureaus, merchants, and data providers. Furthermore, PayPal may, in theory, share this data with corporate groups, financial institutions, merchants, and other companies with which it has a partnership. The policy refers to "reserved rights" and "disclosures to other third parties for business reasons."

What data could theoretically be shared?

Personal data may be shared and used for marketing purposes. If PayPal has been set up, consent to the sharing of data has generally already been given. This consent may be withdrawn at a later time.

PayPal as a trustee

PayPal acts as a kind of trustee and only handles payment processing. PayPal's services are independent of the services of a seller who can be paid via the PayPal service. There is no account number, only the e-mail address of a PayPal member via which payments are made. PayPal is merely the transfer service provider and has nothing to do with the provision of services by a merchant. With PayPal, there is no bank transit time, which is otherwise required for bank transfers. The exception is the real-time transfer, with which a transfer amount is immediately credited to the recipient's bank. However, fees are charged for a real-time transfer, which are usually borne by the sender of the money (transferor). Not all banks offer real-time transfers. PayPal, on the other hand, can be used free of charge by private sellers. Furthermore, banks do not offer buyer protection. PayPal, on the other hand, offers payment with buyer protection as a service.